By Foo Yun Chee
BRUSSELS, March 26 The International Swaps and
Derivatives Association (ISDA) may have joined with investment
banks to keep exchanges out of the credit derivatives market,
European Union regulators said on Tuesday, expanding an
investigation into the sector.
"The (European) Commmission's inquiry found preliminary
indications that ISDA may have been involved in a coordinated
effort of investment banks to delay or prevent exchanges from
entering the credit derivatives business," the EU executive said
in a statement.
The EU antitrust regulators' scrutiny of the credit default
swaps (CDS) industry is one of several by the European
Commission into financial services since the financial crisis.
Lack of transparency in derivatives played a central role in the
2007-09 crisis, leading to calls for action to make this
business less opaque.
Credit default swaps (CDS) are over-the-counter contracts
that bet on whether a company or country will default on its
bonds within a fixed period of time.
ISDA said it was cooperating with the regulatory
authorities. "ISDA is confident that it has acted properly at
all times and has not infringed EU competition rules."
ISDA, the trade body for the derivatives industry, has more
than 800 members including banks, companies, government
entities, investment managers and commodities firms from 60
The EU's two main derivatives exchanges are Eurex, part of
Deutsche Boerse, and LIFFE, owned by NYSE Euronext
Eurex, which had no comment on Tuesday's announcement, tried
to launch the world's first exchange traded credit derivatives
contract in March 2007 but has failed to attract any volume from
banks. LIFFE, which also had no comment, does not list any
credit derivatives contracts.
The Commission, which acts as EU competition watchdog,
first opened its CDS investigation in April 2011, listing 16
banks and financial data company Markit.
This focused on whether the banks may have worked with
Markit to block the development of certain CDS trading
The Commission has now dropped some banks from this list of
16 from the investigation, two people familiar with the matter
said. "Several of the banks have been excluded," said one of the
sources, who declined to be named or to identify the banks,
because of the sensitivity of the matter.
The Commission said in 2011 that banks under investigation
included JP Morgan, Bank of America Merrill Lynch
, Goldman Sachs, Deutsche Bank,
Citigroup, Barclays and BNP Paribas.
Societe Generale, Commerzbank, Credit
Suisse First Boston, HSBC, Morgan Stanley
, Royal Bank of Scotland, UBS, Wells
Fargo Bank/Wachovia and Credit Agricole were